What Additional Russia Sanctions Could Mean For The US Commercial Real Estate Market

Foreign investments play a significant role in the U.S. commercial real estate industry. According to Real Capital Analytics, cross-border deal volume totaled $70.8 billion in 2021.

However, Russian capital has very little presence in global commercial property markets. An average of only $330 million per year over the last five years has flowed from Russia to other countries for commercial real estate investments.

Known Russian investments in U.S. commercial real estate is negligible and any direct impacts would likely be too insignificant to notice.

That’s not to say commercial real estate is fully immune to the impacts of the Russia-Ukraine war.The indirect impacts will primarily be from rising supply costs for new real estate developments. For instance, rising oil prices also mean rising asphalt prices and further inflation will probably mean even higher prices for building materials.

Chief Investment Officer at CrowdStreet, Ian Formigle recently stated in an article on the company’s website, “We recognize that indirect impacts such as the rise in the price of oil, continued supply chain disruptions, and an increasing inflation rate could interfere in the development and ultimately the value of CRE, however, at this time, we are seeing momentum among market participants that are bidding on CRE assets, which is telegraphing to us that it remains an attractive outlet for investable capital.”

Commercial real estate is less volatile than the stock market

All investments carry a level of risk that can be tied to movements in the market. However, the commercial real estate market is much less volatile and fluctuations have historically been much more subtle than with the stock market.

Investors can react to fears almost instantly by liquidating stock holdings, but that’s simply not possible with hard assets like real estate. The cash flow from commercial real estate is still largely protected, so short-term interruptions in the market tend to have little effect on the overall total returns for long-term investors. 

Commercial real estate requires a long-term view

Considering the long-term nature of commercial real estate investments, current events typically have little effect on the overall market. The important thing to remember is that the sanctions being placed against Russia will protect long-term global interests. Left unchecked, Russia’s actions against Ukraine could have far greater implications on the global market and humanity than what’s being experienced now. 

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Photo: The White House